Pros and Cons of Inheritance Funding

Inheritance funding refers to a strategy used by heirs entitled to inheritance property which is held in probate court. Probate is required to settle decedent estates. The process can last several months; causing inheritance assets to depreciate in value. When decedents owe outstanding debts there is a chance assets may need to be sold to cover expenses.

Heirs who elect to obtain inheritance funding must locate a funding source that specializes in this field. The most common funding sources include private investors and cash advance companies. Rarely, do banks or credit unions engage in advance loans. However, when heirs are entitled to titled property such as real estate or motor vehicles, banks may allow heirs to use the property as collateral and enter into a secured loan.

Heirs must conduct due diligence to ensure they are working with a reputable funding source. Heirs are required to assign inheritance rights to the investor in exchange for lump sum cash. Heirs are not required to pay back the advance. Instead, the investor receives the assets used to secure the advance once probate settles.

Private investors assume substantial risk when entering into cash for inheritance loans. In addition to having to wait for the completion of probate, they also face the real possibility that the estate will be forced to sell assets to cover outstanding debts. Investors have no legal recourse to pursue the estate if they are unable to collect on the advance. Nor, can they pursue heirs unless it can be proven that erroneous information was provided to obtain the advance.

The process to obtain cash for inheritance loans can vary. Most funding sources require heirs to undergo a credit and background check to determine if the applicant has outstanding debts which could interfere with repayment. Funding sources need to determine if heirs have tax liens, creditor judgments, bankruptcy proceedings, or outstanding child support or spousal alimony.

Funding sources generally require a copy of the decedent’s last will and testament and death certificate. Funding sources contact the estate administrator to verify inheritance property. In some cases, they will also require property appraisals to determine fair market value.

Inheritance funding is usually offered to heirs entitled to $15,000 or more. Funding sources charge an upfront fee which is deduced from the cash advance. Fees usually range between 10- and 40-percent of the advanced funds. Heirs should investigate multiple funding sources to obtain the lowest fee.

If heirs request a cash advance of $10,000 and funding sources charge 40-percent, the amount of funds received would be $6,000. However, heirs assign inheritance rights for the full $10,000.

Heirs must determine the true cost of obtaining cash advances. Not only will heirs forgo a percentage of anticipated inheritance they might also be assessed inheritance tax for the full amount. It is wise to consult with a probate lawyer or tax accountant to determine if inheritance funding is a smart financial choice.